IN INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM ITA No. 94/JP/2016 Assessment Year : 2011-12. M/s. Pawan Enterprises, Deputy Commissioner of Income-tax, 75, Talkatora, Vs. Central Circle-2, Jaipur. Jaipur. PAN No. AAEFP 3369 F Appellant Respondent Assessee by : Shri Vijay Goyal (CA) Revenue by: Shri R.A. Verma (Addl.CIT) Date of Hearing : 19.09.2016. Date of Pronouncement : 23/09/2016. ORDER PER SHRI KUL BHARAT, JM. appeal filed by assessee is directed against order of ld. CIT (A)-4, Jaipur dated 07.12.2015 pertaining to assessment year 2011-12. assessee has raised following grounds of appeal :- 1. On facts and in circumstances of case and in law ld. CIT (A) erred in confirming rejection of books of accounts and application of section 145(3) of I.T. Act, 1961. 2. On facts and in circumstances of case and in law ld. CIT (A) erred in confirming addition of Rs. 6,48,311/- on a/c of trading addition, by estimating GP of assessee at 21.50% on declared sales as against 21.06% declared by assessee. 2. Briefly stated facts are that case of assessee was picked up for scrutiny assessment and assessment under section 143(3) of Income Tax Act, 1961 (hereinafter referred to as Act) was framed vide order dated 10.03.2014. While framing assessment, AO rejected books of account on basis 2 ITA No. 94/JP/2016 M/s. Pawan Enterprises. that no stock register was maintained and estimated Gross Profit at 22% thereby made addition of Rs. 13,93,184/- and also made addition in respect of excess depreciation claimed of Rs. 11,56,155/- thereby AO computed loss at Rs. 60,32,105/- against loss of Rs. 85,81,444/-. assessee aggrieved by this order, preferred appeal before ld. CIT (A), who sustained rejection of books of accounts. He, however, estimated Gross Profit rate at 21.50% as against 21.06% shown by assessee. 3. Aggrieved by order of ld. CIT (A), assessee is in appeal before us. 4. Ground nos. 1 & 2 are inter-connected. First ground is against rejection of books of account. 4.1. ld. Counsel for assessee has reiterated submissions as made in written brief. ld. Counsel submitted that AO was not justified in rejecting books of account. He submitted that purchases and sales are duly verifiable. Merely because assessee was not maintaining stock register, AO was not justified in rejecting books of account. ld. Counsel submitted that AO has failed to appreciate facts in right perspective. He submitted that due to heavy inflation cost of production of assessee has increased substantially which could not be compensated by increase in sale price. assessee is 100% exporter and price of its products depends on international factors like competition from other countries, dollar fluctuations etc. increase in cost of production was due to inflation which badly affected input cost. He submitted that in A.Y. 2009-10 cost inflation index was 582 which increased to 632 in AY 2010-11. Therefore, increase in inflation was by 50 points. But cost inflation 3 ITA No. 94/JP/2016 M/s. Pawan Enterprises. index for AY 2011-12 was 711 which shows increase in inflation by 79 points which means increase of inflation by 12.5% over last year in comparison of 8.50% in AY 2010-11. Further turnover of assessee has increased from 1315.51 lacs to 1489.74 lacs. 4.2. On contrary, ld. D/R opposed submissions and submitted that assessee ought to have maintained stock register whereby cost of raw material consumed, wastage occurred during manufacturing process etc. are verified. In absence of verification of material, AO was justified in rejecting books of account. 4.3. We have heard rival contentions, perused material available on record and gone through orders of authorities below. There is no dispute with regard to fact that AO is within his power to reject books of account where he finds that books so produced before him, does not give true picture of profit. It is also settled position of law that assessee is required to maintain books of account by which true picture of profit can be deduced. AO rejected books of account, he is required to find out whether correct profit is being deduced or not. In case in hand, AO has not given such finding. AO has merely proceeded on basis of past history of assessee. Therefore, in our considered view, this act of AO is not justified. AO ought to have found out what is impact on profit by non maintenance of stock register. As assessee has demonstrated that it has 100% export sales, AO has not doubted sales. Consequently, AO has not doubted corresponding purchases. Therefore, in our considered view, AO without giving such finding was not 4 ITA No. 94/JP/2016 M/s. Pawan Enterprises. justified in rejecting books of account. Further, we find merit in contention of assessee that there is increase in inflation thereby cost of production was increased. assessee s turnover has also increased. Under these facts, estimation made by AO purely on basis of past history is not justified. ld. CIT (A) also without considering facts in right perspective proceeded to sustain order of AO with minor modification. Under these facts, we find merit in appeal filed by assessee. Accordingly, we hereby direct AO to delete addition. ground raised in this appeal is allowed. 5. In result, appeal of assessee is allowed. Order pronounced in open court on 23/09/2016. Sd/- Sd/- (VIKRAM SINGH YADAV) ( KUL BHARAT )Accountant Member Judicial Member Jaipur Dated:- 23/09/2016. Copy of order forwarded to: s 1. Appellant- M/s. Pawan Enterprises, Jaipur. 2. Respondent- DCIT, Central Circle-2, Jaipur. 3. CIT(A). 4. CIT, 5. DR, ITAT, Jaipur 6. Guard File (ITA No. 94/JP/2016) By order, Assistant. Registrar 5 ITA No. 94/JP/2016 M/s. Pawan Enterprises. M/s. Pawan Enterprises v. Deputy Commissioner of Income-tax, Central Circle-2, Jaipur